San Francisco rated “Best” in debt/value ratio

by sfishome on October 19, 2011

We all know that mortgage debt is a problem for the country.  Underwater borrowers create distress sales in the form of foreclosures and short sales. Understanding where the biggest debt problems are in the country and you’ll know where to expect further price declines as homeowners try to get themselves out from under their debt burdens.


Among the many factors that support home prices in San Francisco is our City’s relative lack of mortgage debt shown on a graph on this New York Times article.

Other parts of the country also have a jobs problem that San Francisco doesn’t have.  According to the Employment Development Department (EDD) San Francisco unemployment is 8.5% vs. 12.1% for the State, and 9.1% Nationally.  In addition, the industries adding jobs are the ones San Francisco excels in.  During the past 12 months Professional and Business Services jobs increased 2.8%, Leisure and Hospitality increased 2.4%, Information gained a whopping 5.6% (although it is a smaller overall number) and Education and Health Services grew by 2.8%.

Unemployment is also a lot lower for those with Bachelor’s Degrees or higher.  Since San Francisco only has one-third of it’s housing stock (or less) as owner-occupied available units, prices are supported by the upper one-third of people.  According to the Bureau of Labor Statistics “Education pays….”   Source.

Those with a Bachelors degree only have 5.4% unemployment and earn $54,000 annually (these are national numbers so they are no doubt higher in San Francisco).  Master’s Degrees are only experiencing 4% unemployment and median annual salary is $66,000.  Professional degrees is 2.4% unemployment with $84,000 median annual income.  Finally, Doctoral degrees at 1.9% unemployment and $81,000 in salary.

Further support for San Francisco real estate comes in the form of income share and wealth share.  Over the past 30 years the top 1% income earners have taking a 10% bite out of overall income and wealth.  This is a huge reason Occupy Wall Street has gained momentum because those 10% bites have come out of the bottom 80%.  But in terms of San Francisco real estate, for those in the top 1% income is up dramatically, for those in the top 2% to 10% income is up slightly, and for those in the top 11% to 20% income is largely flat.  The bottom 80% of income earners have see a drop in pay over the past year, so a drop in home prices was inevitable for this segment. For the high end, here in San Francisco, it only takes a portion of residents doing well to support prices.

This is not to say that prices will not drop from here.  The stock market is a store of wealth for many owners and would-be buyers of San Francisco real estate.  In early 2009 when the stock market was bottoming Real Estate sales, especially at the high end, came to a screeching halt.  As the stock market began to rise luxury San Francisco real estate started to take off again.

There are also many micro markets in San Francisco, not just from one neighborhood to another, but also within neighborhoods.  For example, the north end of town like Pacific Heights and Russian Hill have held their values exceptionally well.  Many luxury properties are flat since the peak, or only down 5% to maybe 10%.  Yet the low end, like one-bedroom condos even in the north end of town, are often down 20% to 30% from the peak.

In summary – education does pay, and higher end real estate is continuing to fair much better than “regular” real estate or the low end markets.


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